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Capital flows consequences of local green finance policies in China

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  • Li, Jun
  • Xu, Chong
  • Li, Jiajia

Abstract

This study investigates the impact of green finance policies implemented by local governments on city-level capital flows in China from 2006 to 2020. The empirical results reveal that green finance policies significantly influence the location choices of enterprises, with a stronger appeal to clean firms over polluting ones. These policies are more effective in attracting off-site firms than local firms. However, off-site enterprises tend to prefer investing in polluting industries, while local enterprises lean towards clean industries. Interestingly, both polluting and clean enterprises show a preference for investing in clean industries rather than polluting ones. Furthermore, green finance policies have the greatest impact on attracting investment from private enterprises, followed by state-owned enterprises, and least for foreign enterprises. The influence of green finance policies is notably more pronounced in preferring location choices of enterprises in the eastern and western regions compared to the central region. Finally, it is evident that these policies primarily attract investment by expanding market scales and reducing environmental regulatory levels, rather than alleviating financing costs.

Suggested Citation

  • Li, Jun & Xu, Chong & Li, Jiajia, 2025. "Capital flows consequences of local green finance policies in China," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 1544-1565.
    • Handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:1544-1565
    DOI: 10.1016/j.eap.2025.10.015
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